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Federal Register / Vol. 86, No. 156 / Tuesday, August 17, 2021 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES

The Exchange believes that the Proposed Access Fees are reasonable, equitably allocated and not unfairly discriminatory because, for one 10Gb ULL connection, the Exchange provides each Member or non-Member access to all twelve matching engines on MIAX
Emerald. Under the proposed pricingstructure, the Exchange will assess each Member or non-Member $9,000 for the first 10Gb ULL connection. For that $9,000 monthly fee, each Member or non-Member has access to all twelve matching engines each month. This results in a per matching engine connectivity cost of only $750 $9,000
divided by 12. The Exchange believes its connectivity cost to be less than or similar to connectivity fees charged by competing options exchanges.20
The Exchange further believes its proposed fees are reasonable, equitably allocated and not unfairly discriminatory because the Exchange believes that it benefits overall competition in the marketplace to allow relatively new entrants like the Exchange and its affiliates, MIAX Pearl and MIAX, to propose fees that may help these new entrants recoup their substantial investment in building out costly infrastructure. The Exchange and its affiliates have historically set their fees purposefully low in order to attract business and market share, and the proposed tiered-pricing structure will help make the rates consistent with other exchanges while not raising costs for a majority of the Exchanges Members and non-Members.
The Guidance provides that in determining whether a proposed fee is constrained by significant competitive forces, the Commission will consider whether there are reasonable substitutes for the product or service that is the subject of a proposed fee. As described below, the Exchange believes substitute products and services are available to market participants, including, among 20 See The Nasdaq Stock Market LLC
NASDAQ Rules, General 8: Connectivity, Section 1. Co-Location Services charging a monthly fee of $10,000 per 10Gb fiber connection, $15,000
per 10Gb Ultra fiber connection, and $20,000 per 40Gb fiber connection, plus installation fees ranging from $1,000 to $1,500. The Exchange notes that the same connectivity fees described above for NASDAQ also apply to its affiliates, Nasdaq ISE, LLC and NASDAQ PHLX LLC. See Nasdaq ISE
Rules, General 8: Connectivity and NASDAQ PHLX
Rules, General 8: Connectivity both incorporating by reference the fees in NASDAQ Rules, General 8:
Connectivity. See also NYSE American LLC
Options Fee Schedule, Section IV charging the following connectivity fees: $6,000 per connection initial charge plus $5,000 monthly per 1Gb circuit connection; $15,000 per connection initial charge plus $22,000 monthly per 10Gb LX LCN circuit connection; and $15,000 per connection initial charge plus $22,000 monthly charge per 40Gb LCN
circuit connection.

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other things, other options exchanges that market participants may connect to in lieu of the Exchange, indirect connectivity to the Exchange via a thirdparty reseller and/or trading of any options products, including proprietary products, in the Over-the-Counter OTC markets.
There is also no regulatory requirement that any market participant connect to any one options exchange, that any market participant connect at a particular connection speed or act in a particular capacity on the Exchange, or trade any particular product offered on an exchange. Moreover, membership is not a requirement to participate on the Exchange. A market participant may submit orders to the Exchange via a Sponsored User.21 Indeed, the Exchange is unaware of any one options exchange whose membership includes every registered broker-dealer. Based on a recent analysis conducted by the Cboe Exchange, Inc. Cboe, as of October 21, 2020, only three 3 of the brokerdealers, out of approximately 250
broker-dealers, were members of at least one exchange that lists options for trading and were members of all 16
options exchanges.22 Additionally, the Cboe Fee Filing found that several broker-dealers were members of only a single exchange that lists options for trading and that the number of members at each exchange that trades options varies greatly.23
The Exchange notes that non-Member third-parties, such as Service Bureaus and Extranets, resell the Exchanges connectivity. This indirect connectivity is another viable alternative for market participants to trade on the Exchange without connecting directly to the Exchange and thus not pay the Exchanges connectivity fees, which alternative is already being used by nonMembers and further constrains the price that the Exchange is able to charge for connectivity and other access fees to its market. The Exchange notes that it could, but chooses not to, preclude market participants from reselling its 21 See Exchange Rule 210. The Sponsored User is subject to the fees, if any, of the Sponsoring Member. The Exchange notes that the Sponsoring Member is not required to publicize, let alone justify or file with the Commission its fees, and as such could charge the Sponsored User any fees it deems appropriate, even if such fees would otherwise be considered supra-competitive, or otherwise potentially unreasonable or uncompetitive.
22 See Securities Exchange Act Release No. 90333
November 4, 2020, 85 FR 71666 November 10, 2020 SRCBOE2020105 the Cboe Fee Filing. The Cboe Fee Filing cited to the October 2020 Active Broker Dealer Report, provided by the Commissions Office of Managing Executive, on October 8, 2020.
23 Id.

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connectivity. The Exchange also chooses not to adopt fees that would be assessed to third-party resellers on a per customer basis i.e., fees based on the number of firms that connect to the Exchange indirectly via the third-party.
Indeed, the Exchange does not receive any connectivity revenue when connectivity is resold by a third-party, which often is resold to multiple customers, some of whom are agency broker-dealers that have numerous customers of their own.24 In sum, the Exchange believes this creates and fosters a competitive environment and subjects the Exchange to competitive forces in pricing its connectivity and access fees. Particularly, in the event that a market participant views the Exchanges direct connectivity and access fees as more or less attractive than competing markets, that market participant can choose to connect to the Exchange indirectly or may choose not to connect to the Exchange and connect instead to one or more of the other 15
options markets. Accordingly, the Exchange believes that the Proposed Access Fees are fair and reasonable and do not result in excessive pricing or supra-competitive profit.
B. Self-Regulatory Organizations Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
With respect to intra-market competition, the Exchange does not believe that the proposed rule change would place certain market participants at the Exchange at a relative disadvantage compared to other market participants or affect the ability of such market participants to compete. As stated above, the Exchange does not believe its proposed pricing will impose a barrier to entry to smaller participants and notes that its proposed connectivity pricing structure for its 10Gb ULL
connections is associated with relative usage of the various market participants.
Further, the majority of firms that purchase 10Gb ULL connections may either save money or pay the same amount after the tiered-pricing structure is implemented. While total cost may be increased for market participants with larger capacity needs or for business/
24 The Exchange notes that resellers are not required to publicize, let alone justify or file with the Commission their fees, and as such could charge the market participant any fees it deems appropriate including connectivity fees higher than the Exchanges connectivity fees, even if such fees would otherwise be considered potentially unreasonable or uncompetitive fees.

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